Management's Discussion and Analysis Boston Pizza
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MANAGEMENT’S DISCUSSION AND ANALYSIS BOSTON PIZZA INTERNATIONAL INC. For the three month and six month periods ended June 30, 2021 FINANCIAL HIGHLIGHTS The tables below set out selected information from the condensed consolidated interim financial statements of Boston Pizza International Inc. (“BPI” and where applicable also includes its wholly-owned subsidiaries), and the accounts of Boston Pizza Canada Limited Partnership (“BP Canada LP”), together with other data, and should be read in conjunction with the condensed consolidated interim financial statements of BPI for the three and six month periods ended June 30, 2021 and June 30, 2020, and in conjunction with the Management Discussion and Analysis (“MD&A”) of BPI for the year ended December 31, 2020. The financial information reported in the tables included in this MD&A are reported in accordance with International Financial Reporting Standards (“IFRS”) except as otherwise noted and are stated in Canadian dollars. 123 For the periods ended June 30 Q2 2021 Q2 2020 YTD 2021 YTD 2020 (in thousands of dollars - except number of restaurants and per share items) System-Wide Gross Sales1 162,931 129,845 319,673 354,602 Number of Boston Pizza Restaurants2 385 390 385 390 Franchise Sales reported by Boston Pizza Restaurants3 134,839 107,522 263,836 282,025 Income Statement Data Total revenues 18,296 14,703 35,595 40,054 Royalty expense (5,393) (4,286) (10,553) (11,249) Distribution expense (1,797) (1,423) (3,514) (3,716) Operating expenses excluding Royalty and Distribution expense (9,961) (8,188) (19,047) (26,109) Earnings (loss) before interest and fair value (loss) gain 1,145 806 2,481 (1,020) Net interest expense (42) (513) (225) (421) Fair value (loss) gain (3,478) (3,994) (9,892) 16,862 (Loss) earnings before income taxes (2,375) (3,701) (7,636) 15,421 Current and deferred income tax (expense) recovery (49) (1,225) (387) 3,831 Net and comprehensive (loss) income (2,424) (4,926) (8,023) 19,252 Basic and diluted (loss) income per share (24.71) (50.22) (81.79) 196.27 Balance Sheet Data Jun 30, 2021 Dec 31, 2020 Total assets 150,855 147,829 Total liabilities 414,094 403,045 1) “System-Wide Gross Sales” means the gross revenue: (i) of the corporate Boston Pizza Restaurants (defined below) in Canada owned by BPI; and (ii) reported to BP Canada LP by franchised Boston Pizza Restaurants in Canada, without audit or other form of independent assurance, and in the case of both (i) and (ii), including revenue from the sale of liquor, beer, wine and revenue from BP Canada LP approved national promotions and discounts, but excluding applicable sales and similar taxes. 2) As at the end of the applicable period. 3) “Franchise Sales” means the gross revenue: (i) of the corporate Boston Pizza Restaurants in Canada owned by BPI; and (ii) reported to BP Canada LP by franchised Boston Pizza Restaurants in Canada, without audit or other form of independent assurance, and in the case of both (i) and (ii), after deducting revenue from the sale of liquor, beer, wine and revenue from BP Canada LP approved national promotions and discounts, and excluding applicable sales and similar taxes. - 1 - MANAGEMENT’S DISCUSSION AND ANALYSIS BOSTON PIZZA INTERNATIONAL INC. For the three month and six month periods ended June 30, 2021 SUMMARY OF QUARTERLY RESULTS Q2 2021 Q1 2021 Q4 2020 Q3 2020 (in thousands of dollars - except number of restaurants and per share items) System-Wide Gross Sales1 162,931 156,741 181,723 237,208 Number of Boston Pizza Restaurants2 385 386 387 388 Franchise Sales reported by Boston Pizza Restaurants3 134,839 128,997 146,657 186,412 Income Statement Data Total revenues 18,296 17,299 21,522 24,499 Royalty expense (5,393) (5,160) (5,862) (7,417) Distribution expense (1,797) (1,717) (1,946) (2,452) Operating expenses excluding Royalty and Distribution expense (9,961) (9,086) (11,873) (12,906) Earnings before interest and fair value (loss) gain 1,145 1,336 1,841 1,724 Net interest (expense) income (42) (183) 735 (700) Fair value (loss) gain (3,478) (6,414) (16,004) 7,109 (Loss) earnings before income taxes (2,375) (5,261) (13,428) 8,133 Current and deferred income tax (expense) recovery (49) (338) (7,272) 1,127 Net and comprehensive (loss) income (2,424) (5,599) (20,700) 9,260 Basic and diluted (loss) income per share (24.71) (57.08) (211.04) 94.41 Q2 2020 Q1 2020 Q4 2019 Q3 2019 (in thousands of dollars - except number of restaurants and per share items) System-Wide Gross Sales1 129,845 224,757 276,509 283,570 Number of Boston Pizza Restaurants2 390 394 395 397 Franchise Sales reported by Boston Pizza Restaurants3 107,522 174,503 213,089 221,528 Income Statement Data Total revenues 14,703 25,351 31,397 31,792 Royalty expense (4,286) (6,963) (8,447) (8,769) Distribution expense (1,423) (2,293) (2,785) (2,886) Operating expenses excluding Royalty and Distribution expense (8,188) (17,921) (17,778) (17,726) Earnings (loss) before interest and fair value (loss) gain 806 (1,826) 2,387 2,411 Net interest (expense) income (513) 92 732 355 Fair value (loss) gain (3,994) 20,856 11,570 488 (Loss) earnings before income taxes (3,701) 19,122 14,689 3,254 Current and deferred income tax (expense) recovery (1,225) 5,056 2,257 (722) Net and comprehensive (loss) income (4,926) 24,178 16,946 2,532 Basic and diluted (loss) income per share (50.22) 246.50 172.76 25.81 - 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS BOSTON PIZZA INTERNATIONAL INC. For the three month and six month periods ended June 30, 2021 OVERVIEW This MD&A covers the three month period from April 1, 2021 to June 30, 2021 (the “Period”) and the six month period from January 1, 2021 to June 30, 2021 (“YTD”) and is dated August 12, 2021. It provides additional analysis of the operations, financial position and financial performance of BPI and should be read in conjunction with BPI’s applicable condensed consolidated interim financial statements and the accompanying notes. The condensed consolidated interim financial statements of BPI are in Canadian dollars and have been prepared in accordance with IFRS except as otherwise noted. General BPI is a privately controlled company and prior to April 6, 2015, was the exclusive franchisor of the Boston Pizza (defined below) concept in Canada. On April 6, 2015, BP Canada LP, a British Columbia limited partnership controlled and operated by BPI, became the exclusive franchisor of the Boston Pizza concept in Canada. On May 6, 2015, Boston Pizza Royalties Income Fund (the “Fund”) completed an indirect investment in BP Canada LP to effectively increase the Fund’s indirect interest in Franchise Sales of Boston Pizza Restaurants (defined below) in the Royalty Pool (defined below) by 1.5%, from 4.0% to 5.5% less the pro rata portion payable to BPI in respect of its retained interest in the Fund (the “2015 Transaction”). BPI and BP Canada LP compete in the casual dining sector of the restaurant industry and Boston Pizza is the number one casual dining brand in Canada. With approximately 380 restaurants stretching from Victoria to St. John’s, Boston Pizza has more restaurants and serves more customers annually than any other casual dining restaurant chain in Canada. Royalty BP Canada LP charges a 7.0% royalty fee on Franchise Sales for full-service Boston Pizza restaurants open in Canada (the “Boston Pizza Restaurants”). BPI pays Boston Pizza Royalties Limited Partnership (“Royalties LP”), an entity controlled by the Fund, a 4.0% royalty fee (the “Royalty”) on Franchise Sales from the Boston Pizza Restaurants in the royalty pool (the “Royalty Pool”) for the use of the Boston Pizza trademarks in Canada (the “BP Rights”4). As at June 30, 2021, there were 387 Boston Pizza Restaurants in the Royalty Pool. Distributions from BP Canada LP Boston Pizza Holdings Limited Partnership (“Holdings LP”), an entity controlled by the Fund, holds Class 1 limited partnership units (“Class 1 LP Units”) and Class 2 limited partnership units (“Class 2 LP Units”) of BP Canada LP, and BPI holds, indirectly through Boston Pizza Canada Holdings Partnership (“BPCHP”), Class 2 general partnership units of BP Canada LP (“Class 2 GP Units”), which are exchangeable for units of the Fund (“Fund Units”). The Class 1 LP Units and Class 2 LP Units provide Holdings LP with the right to receive distributions from BP Canada LP equal, in aggregate, to 1.5% of Franchise Sales, less the pro rata portion payable to BPI in respect of its Class 2 GP Units (the “Distributions”). Specifically, the Class 1 LP Units entitle Holdings LP to receive a priority distribution equal to the amount of interest that Holdings LP pays on certain indebtedness of Holdings LP plus 0.05% of that amount, with the balance of 1.5% of Franchise Sales being distributed pro rata to Holdings LP and BPI on the Class 2 LP Units and Class 2 GP Units, respectively. After BP Canada LP pays distributions on the Class 1 LP Units, Class 2 LP Units and Class 2 GP Units, BPI is entitled to all residual distributions from BP Canada LP on the Class 3 general partnership units, Class 4 general partnership units, Class 5 general partnership units and Class 6 general partnership units of BP Canada LP that BPI holds. 4) BP Rights are the trademarks that as at July 17, 2002 were registered or the subject of pending applications for registration under the Trademarks Act (Canada), and other trademarks and trade names which are confusing with the registered or pending trademarks.